Pension Profile Preferences: The Influence of Trust and Expected Expenses

40 Pages Posted: 1 Dec 2016

See all articles by Carin van der Cruijsen

Carin van der Cruijsen

De Nederlandsche Bank

Nicole Jonker

De Nederlandsche Bank (DNB); De Nederlandsche Bank

Date Written: November 28, 2016

Abstract

This paper studies the influence of people’s expectations about expenses during retirement and trust in pension funds on preferences for different pension arrangements. We find that although most workers prefer a flat-rate annuity, many workers want to deviate from it. The most popular option is a high/low, annuity-based profile, followed by a partial lump sum payment. One of the underlying reasons for preferring a more flexible pattern is an expected shift in expenditure during retirement. Our regressions reveal that workers who expect declining expenses during retirement are more likely to opt for a high/low annuity-based pension and/or a lump sum payment at retirement than workers who expect stable expenses. Furthermore, we find that workers and pensioners who do not trust their pension fund are more likely to prefer a lump sum over annuity-based arrangements than workers and pensioners with a high degree of trust.

Keywords: consumption, trust, pension annuities, lump sum

JEL Classification: D14, D91, G20, J26

Suggested Citation

van der Cruijsen, Carin and Jonker, Nicole, Pension Profile Preferences: The Influence of Trust and Expected Expenses (November 28, 2016). De Nederlandsche Bank Working Paper No. 535. Available at SSRN: https://ssrn.com/abstract=2877763 or http://dx.doi.org/10.2139/ssrn.2877763

Carin van der Cruijsen

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Nicole Jonker (Contact Author)

De Nederlandsche Bank (DNB) ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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